Keen to get out of the shadow

Eric Roozendaal
awoke one night in February to a strange question from his concerned son. The tsunami alert was all over the news and the NSW Treasurer was asked what would happen if it washed through his family’s North Bondi home. Rather than patronise his son by pointing out that the house was a good few blocks back from the beach, Roozendaal said they would all go upstairs and let the wave wash through.

It’s hard to know whether Roozendaal, when retelling the story, was aware of the Premier’s new nickname for his opposite number. Making fun of shadow treasurer
Mike Baird
’s blog,
Kristina Keneally
has started referring to him in parliament as “the wave from Manly".

Indeed, polls suggest that 12 months from now “the wave" will almost certainly wash through Roozendaal’s house. But a year is a long time in politics, and while the main bout is Keneally versus O’Farrell, business groups will be focused on the contest of the treasurers.

Unlike
Barry O’Farrell
, who is struggling against his photogenic counterpart Keneally, Baird is clearly the favoured candidate. Coming to politics after 18 years in finance, most recently as head of corporate banking for HSBC’s local arm, “he talks to business in a language they understand", says Sydney Business Chamber executive director and former Liberal MP Patricia Forsythe. Baird is the dream Liberal Party money man. Well bred (son of former state and federal politician Bruce Baird), well connected (his mentors include Business Council of Australia chairman Graham Bradley and ANZ chief executive and former HSBC Asia boss Mike Smith) and well informed.

Roozendaal has less in common with the business world. He dropped out of a commerce degree opting to finish law instead and is a career politician. He worked his way up the ALP ranks to be general secretary in 1999, oversaw Bob Carr’s 2003 election campaign and was elected to the NSW legislative council the following year. On the other hand, Roozendaal is seen as very powerful within the government, having been instrumental to Keneally’s ascension.

“He’s a safe pair of hands and he’s certainly very powerful within the government," says Forsythe.

“Most policies are now being developed under the watchful gaze of Treasury eyes."

Roozendaal’s pitch to business ahead of the election is that NSW, despite a decade of dismal economic performance, is recovering faster than any other state from the global financial crisis. Baird says the state’s in a mess and he is going to make it the fastest-growing state, with the highest business confidence and the lowest unemployment rate. Indeed, his party has made the economy its No. 1 issue, yesterday launching the campaign: “To make NSW number 1 again."

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But while Baird says all the right things in the boardroom, there is some concern that he will have trouble pushing through a reformist agenda in his own party room. The opposition’s stand against electricity privatisation for political reasons, against Baird’s protests, drew strong criticism from business groups and led them to question the shadow treasurer’s ability to bring his colleagues with him on key decisions.

“The challenge for Mike Baird over the coming year is to shift the position from one that is often seen as inherently opposed to privatisation to one that can become its champion," says Forsythe.

Baird says that criticism is unfair and he is united with his team in opposing the electricity privatisation because of its complicated structure and the uncertainty surrounding a federal emissions trading scheme.

There is no doubt Baird is constrained by continuing speculation about his leadership ambitions. While he has ruled out a challenge to O’Farrell ahead of the election, the government has been keen to stir up leadership tension.

“It appears that he’s either willingly or unwillingly had to pull his head in," says veteran pollster Rod Cameron.

“You don’t hear him very much, which is a pity. It would be better in a governance sense if he was more visible as an economic manager. He seems to be restrained so that he can’t come out with grand visionary statements."

If the polls are right and Baird does become the next treasurer of NSW, he would inherit a state economy weakened by 15 years of underinvestment in roads, ports and rail, and would have to manage the growing demands on the $48 billion budget from health and transport.

But, on the bright side, the prospects for the economy and the budget are improving. While the economy grew 0.2 per cent in the 2009 financial year, the slowest of any of the states and territories, activity has picked up in 2010. Employment growth has been strong as the financial services companies started hiring again.

And Roozendaal has notched up some successes. He sold NSW Lotteries to Tabcorp for $1 billion, a much bigger price than expected, protected the state’s AAA credit rating during the global financial crisis (although some would say to the detriment of investment in big infrastructure projects) and looks to have steered the budget back into surplus.

The last budget forecast from the government, released in December, was for a $1 billion deficit in 2009-10 and an $872 million surplus the following year. But most economists expect the actual numbers to be better, thanks to the sale of NSW Lotteries and a resurgent property market that has boosted stamp duty revenues.

Forsythe says other ticks for the government include its support for the Barangaroo development, which could help Sydney become the main financial services hub in South-East Asia, and a successful fight to boost NSW’s share of GST revenue.

Yet these successes must be seen in the context of a dismal economic performance by NSW over the past decade and severe underinvestment in infrastructure.

In the 10 years to June 30, 2009, the state clocked an annual average compound growth rate of just 2.1 per cent, making it the worst performer in the country.

Roozendaal says it’s unfair to compare NSW with the resources-rich states of Queensland and Western Australia. He also says NSW is leading the way in rolling out the government’s stimulus package and in its recovery from the global financial crisis.

“We don’t have a resources-based economy," he tells The Australian Financial Review. “That’s why we had a much bigger impact from the global crisis because it was felt by all of our service-oriented and financial services-based organisations."

Rather than focus on comparative growth rates, Roozendaal refers to the state’s retention of its AAA credit rating throughout the crisis, particularly when Queensland was unable to do so. And NSW even managed to shrug off a negative outlook on that rating. (Most states and territories now have AAA credit ratings with stable outlooks; Tasmania and Queensland have AA+ ratings).

But some have criticised Roozendaal for being obsessed with holding onto the rating at any cost, especially when the risk premium attached to a AAA rating as opposed to a AA+ is not significant.

They say it has become a personal reputation issue for Roozendaal and was the prime motivation for axing the CBD Metro project last month, a decision that angered the construction companies that bid for the project. They are now seeking about $200 million in costs and say the move has greatly undermined business confidence in dealing with the government.

Baird agrees that the AAA rating is important but he says there is still capacity to look at “innovative ways of financing" and maintain the rating. One example would be to issue so-called “waratah bonds" to self-managed super funds. He says he will need to repair the damage done to the government-private sector relationship.

“We need to restore confidence and send signals to every business in this country that should we be elected, doing business in NSW is about to become easier at every level," Baird tells the AFR.

“We will move to make our taxes again competitive with key competitor states and we will take the jackhammers to the unreasonable imposts on business through workers’ compensation and occupational health and safety."

Says Paul Ritchie, spokesman for the NSW Business Chamber: “The real test [for Baird] will be in the next year to deliver a set of promises and costings that are affordable and within budget. That will be a very important test and a test of his ability to carry his colleagues."